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Document Summaries for the Week of Aug. 10, 2015

EMPLOYEE BENEFITS

IRS updates weighted average interest rates, yield curves, and segment rates for August

The IRS issued guidance on the corporate bond monthly yield curve, the corresponding spot segment rates used under Sec. 417(e)(3), and the 24-month average segment rates under Sec. 430(h)(2) for August 2015. The guidance also provides the interest rate on 30-year Treasury securities under Sec. 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008 and the 30-year Treasury weighted average rate under Sec. 431(c)(6)(E)(ii)(I). Notice 2015-55 (8/10/15)

ESTATES, TRUSTS & GIFTS

Final regs. on the basis of an interest in a charitable remainder trust

The IRS finalized regulations that provide rules for determining a taxable beneficiary’s basis in a term interest in a charitable remainder trust when all interests in the trust are sold or otherwise disposed of. T.D. 9729 (8/11/15) (see related news story)

INDIVIDUALS

The Ninth Circuit reversed a Tax Court decision, which held that the mortgage interest deduction under Sec. 163(h)(3) applied on a per-residence basis to unmarried co-owners of a qualified residence. While the statute is silent as to unmarried co-owners, the Ninth Circuit looked to the statute’s treatment of married individuals filing separate returns and concluded that the debt limit applies to unmarried co-owners on a per-taxpayer basis. Voss, No. 12-73257 (9th Cir. 8/7/15) (see related news story)

The Tax Court held that the taxpayers established that some of their unreported deposits, which the IRS had classified as taxable income, consisted of nontaxable transfers and loan proceeds and that some of the alleged unreported income resulted from computational errors. However, the court concluded, the taxpayers failed to establish that the balance of the determined unreported income was nontaxable or resulted from computational errors and, with the exception of certain expenses allowed for a landscaping business, the taxpayers failed to establish that the balance of the determined unreported income was nontaxable or resulted from computational errors. Ocampo, T.C. Memo. 2015-150 (8/11/15)

No deduction allowed for legal education that did not maintain or improve skills

The Tax Court held that the taxpayer, who was licensed to practice law in Germany, was not entitled to deduct expenses for his U.S. legal education because the education did not maintain or improve skills required in his trade or business. Further, the court concluded that the taxpayer was liable for accuracy-related penalties. O’Connor, T.C. Memo. 2015-155 (8/12/15)

No income from data protection services for ID theft victims

Taxpayers whose personal information was compromised in a data breach will not have to recognize income from data protection services provided at no cost by the organization that experienced the data breach, the IRS announced. Announcement 2015-22 (8/13/15) (see related news story)

Abused wife entitled to innocent spouse relief

After considering the various factors for innocent spouse relief in Rev. Proc. 2013-34, the Tax Court held that the taxpayer was entitled to relief for the 2009 joint tax return she filed with her husband,. The record was clear, the court said, that the taxpayer suffered abuse at the hands of her husband and was afraid to question anything having to do with the tax return out of fear of retaliation. Hollimon, T.C. Memo. 2015-157 (8/12/15)

IRS PROCEDURE

Regs. issued to limit W-2 extensions

Temporary and proposed regulations were issued to allow only one nonautomatic 30-day extension of time to file forms in the W-2 series (except Form W-2G, Certain Gambling Winnings). T.D. 9730; REG-132075-14 (8/12/15) (see related news story)

IRS did not abuse its discretion in sustaining tax lien against the taxpayers

The Tax Court held that, where a husband and wife did not submit any financial information during their collection due process hearing or offer any collection alternative, the IRS did not abuse its discretion in sustaining a notice of federal tax lien against them. Seipel, T.C. Memo. 2015-154 (8/11/15)

Revised computations of taxpayer’s tax liability were correct

The Tax Court sided with the IRS and held that, because the taxpayer presented neither evidence nor arguments showing otherwise, the IRS’s revised computations of the taxpayer’s tax liability were correct. Whittington, T.C. Memo. 2015-152 (8/11/15)

The Tax Court held that the cumulative effect of an IRS settlement officer’s handling of the taxpayer’s collection due process hearing demonstrated that she acted arbitrarily and capriciously in refusing the taxpayer’s request for a collection alternative and in sustaining a proposed collection action. The court remanded the case to the IRS Appeals Office so that the taxpayer might have a fair hearing. Charnas, T.C. Memo. 2015-153 (8/11/15).

Guidance issued on obtaining assistance from the U.S. competent authority

The IRS provided guidance on requesting and obtaining assistance under U.S. tax treaties from the U.S. competent authority, acting through the Advance Pricing and Mutual Agreement Program and the Treaty Assistance and Interpretation Team of the Deputy Commissioner (International), Large Business & International Division of the IRS. The revenue procedure updates and supersedes Rev. Proc. 2006-54. Rev. Proc. 2015-40 (8/13/15)

The Tax Court held that the taxpayer was liable for various tax-related penalties for failing to report over $5.6 million of income and failing to report his dealings in cash. The court found that the taxpayer failed to maintain records of any nature, failed to file tax returns for 1995 through 2001, and filed a false 2002 return that understated income. George, T.C. Memo. 2015-158 (8/12/15)

IRS did not abuse its discretion in sustaining proposed collection actions

The Tax Court held that the taxpayer could not challenge his underlying liabilities for employment, withholding, and FUTA taxes and that the IRS had not abused its discretion in sustaining proposed collection actions against the taxpayer. Lunnon, T.C. Memo. 2015-156 (8/12/15)

Couple does not qualify for OICs

Because the taxpayers identified no public policy or equity considerations that would justify a compromise of their tax liabilities on the basis of effective tax administration, the Tax Court concluded that they did not qualify for an offer in compromise (OIC) on this ground. Nor did they show that the collection of the full liability would cause economic hardship and thus did not qualify for an OIC on this ground. York, T.C. Memo. 2015-159 (8/13/15)

No refund allowed where corporation failed to file claim within 10-year limitation period

The Federal Circuit affirmed the Court of Federal Claims’s dismissal of a corporation’s request for a refund of certain taxes paid for its 1997 and 1998 tax years agreeing that the lower court lacked subject matter jurisdiction because the corporation had not filed its refund claims within the 10-year limitation period prescribed in Sec. 6511(d)(3)(A). Albemarle Corp., No. 2015-5015 (Fed. Cir. 8/13/15)

Banks cannot mount pre-enforcement challenge to penalty

The District of Columbia Circuit held that the Anti-Injunction Act prevents banks from challenging Regs. Secs. 1.6049-4 and -8, imposing a penalty on banks that fail to report interest paid to certain foreign account holders, before a penalty is imposed because the Act bars pre-enforcement challenges to tax statutes. The court said the penalty at issue counts as a tax for purposes of the Act. Florida Bankers Ass’n, No. 14-5036 (D.C. Cir. 8/14/15)

MISCELLANEOUS

IRS addresses treatment of fuel credits under Sec. 6426

The IRS issued guidance on the federal income tax treatment of fuel credits under Secs. 6426(c) and (d) that are paid in cash under the one-time claim submission process of Section 160(e) of the Tax Increase Prevention Act of 2014, and implemented by Notice 2015-3. Notice 2015-56 (8/14/15)

PARTNERSHIPS

Payments labeled as “distributions” were really guaranteed payments

The Tax Court upheld an IRS determination that payments by a partnership to a partner, which were labeled as “distributions,” were really guaranteed payments under Sec. 707(c). Seismic Support Servs., LLC, T.C. Memo. 2015-151 (8/11/15)

The Federal Claims Court sustained a Final Partnership Administrative Adjustment that denied a partnership’s claim of built-in losses on the disposition of securities derived from Russian sovereign debt. The court agreed with the IRS that the exchange of partnership shares for the securities was not bona fide and also upheld penalties assessed on the partnership. Russian Recovery Fund Ltd., No. 06-30T (Fed. Cl. 8/12/15)

State audits of abandoned and unclaimed property (AUP) have exploded in recent years. This report outlines the escheat process, common types of AUP, how different states are handling it and how companies can plan for potential audits and liabilities.

Don’t get lost in the fog of legislative changes, developing tax issues, and newly evolving tax planning strategies. Tax Section membership will help you stay up to date and make your practice more efficient.